Looking past the Hurricanes on Jobs Day...

Friday 6th October 2017

Looking past the Hurricanes on Jobs Day ....

ref :- General

Just passing through today but since we happen to be next to a keyboard just as September's US Employment data is being released, we'll offer the briefest, and most jerky, of knee-jerk reactions.

Non-farm payrolls                               :    expected +85,000,  actual -33,000

Unemployment rate                            :    expected 4.4%,  actual 4.2%

Average hourly earnings (m-on-m)     :    expected +0.3%,  actual 0.5% 

These look a little contradictory ..... the NFP number is weak for sure, but the headline rate and especially the earnings data is strong. The reason that the payrolls number is at odds with the headline rate can be put down to the hurricane(s) effect on the data. Strong headline employment means that jobs are still being created at a healthy rate, but the payroll number reflects the disruption to peoples' ability to get to work consistently over the period, apparently ...... or something like that.

Also of note is upward revisions to previous payroll numbers, but the key take-out (ugh!) is likely to be the +0.5% hourly earnings, which brings the year-on-year number to +2.9%. This may turn out to be a sign that tight labour markets are finally translating into long-awaited healthy growth in wages, which in turn of course should mean upward pressures on inflation. An annual 2.9% of wage growth is getting very close to Janet Yellen's idea of what a healthy rate should be in a growth cycle  --  3% - 4%. Perhaps the old principles about employment and inflation are still basically true after all, as Ms Yellen and the Fed have been telling us all along. It just takes a bit longer perhaps, and the relationship may not be quite so direct ..... ?

Too early to tell ...... and too early to call too much in the way of market implications of this data. But at the risk of looking a bit stupid in an hour or two's time, this data should be seen as supportive of the Fed's tightening plans. That of course should be good for the dollar, bad for bond prices (with bond yields on the up). Famous last words, but a rate hike in December looks close to being nailed-on failing some unforeseen geopolitical event (Careful, Mr President  ! ) or economic implosion.

Have a nice weekend ....